A swing chart tells you how a business is doing and helps you understand where the business is going. Think about it this way. If the stock price is flat (no movement) then it indicates no future growth in the business.
If the stock is going up (or losing value) then it means that there is potential for growth, or at least a steady trend in the business.
The stock should move in the direction of where the business is declining most.
If the stock is in a downtrend, then it means that the business is experiencing a sharp decline in the stock price – this may signal a downward price trend or even an uptrend.
So what is the swing chart doing for the business? If a company is doing well and has a steady decline in the stock price, then that is great news. (See the chart below).
However, if the business is getting more expensive every week and the stock price is getting out of sync with this declining trend and the company is still losing money then things are not going very well for the business.
The reason people get excited when a stock is in positive territory is that they think they can buy the stock, hold it for a day or few months, and sell it to make more money.
However, this can also make you sell at a loss if you are holding it too long.
Remember, though, that we don’t just have to look at the chart to make an informed decision. You also need to examine your own financial history, which explains the underlying risk of investing.
For example, you should ask yourself:
How much of my portfolio is invested in stocks, and do you think this will continue?
If you own stocks but you don’t think you will be able to cover the cost of a new car, then it would make sense to liquidate your portfolio.
Also, if you buy a new car, there is a good chance it will be more expensive for a couple more years. After that, however, it may be less expensive.
To put it simply, if you can save just 20% for the next 2 or 3 years, that means to invest 20% of that amount in stocks, you will only need to make one sale. In other words, if your stock price is in a downtrend, that could really indicate that you shouldn’t get into the stock right now. You may even want to consider selling.
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